On Friday, Sterling was able to make further gains against the dollar and was set for its best week in eight following the agreement of Britain on a Brexit transition deal. Also, the investors received some clarity regarding a potential interest rate increase in May.
The British currency traded at $1.4151 after adding 0.4 percent, bringing the week to date gains to 1.49 percent.
On Friday, the pound soared as the dollar sold off on concerns regarding a global trade war, which the investors say could also affect sterling in the medium-term given the trade deficit of the United Kingdom.
An FX strategist at ING in London, Viraj Patel, said: “The repricing story for sterling is all done, and all the cards have now fallen in place for the short term, but any trade war outbreak will be a significant headwind.”
On Thursday, Donald Trump, the President of the United States, signed a memorandum that will target a maximum of $60 billion worth of products from China with tariffs. However, it will be imposed only after a 30-day consultation period that begins once a list of the goods is already issued.
The pound will be caught in the crossfire of any kind of global trade war since the United Kingdom has a huge deficit for which it requires capital inflows.
On Monday, the United Kingdom reached an agreement with the European Union regarding a 21-month transition period after its exit from the bloc in March 2019, reducing the possibility of a “cliff-edge” Brexit that most investors have feared.
This week, better-than-expected wages information also boosted the pound.
On Thursday, the Bank of England kept the interest rates unchanged. However, two policymakers voted to increase them, reinforcing the perception among many economists that the borrowing costs will increase in May for only the second time since the financial crisis in 2008.
However, some investors turned cautious following the reiteration of the BoE that rate increases would remain gradual. Also, earlier on Thursday, sterling pulled back from the month’s highs hit that amounted to $1.4220.
Sterling weakened against the euro before it was able to recover to trade flat at 87.265 pence per euro.